Principal Secretary K. Ramakrishna Rao, Founder Member, Center for Economic and Social Studies Hyderabad GR Reddy, 15th Finance Commission Member AN Jha, Associate Professor, National Institute of Public Finance and Policy Manish Gupta and Consultant, Institute of Fiscal Policy, Bengaluru, Gayithri Karnam at a conference at Hyder Tajabad Deccan in Hyderabad on Wednesday. | Photo credit: SIDDHANT THAKUR
India’s fiscal federalism is at a critical juncture and if the framework of the 16th Finance Commission is to effectively support both national growth priorities and state-level development, there must be a renewed spirit of dialogue between the Center and the states and greater transparency and stronger institutions, said renowned speakers at a high-level conference on the 16th FC report held here on Wednesday.
Former Reserve Bank of India Governor D. Subba Rao, who described India’s “union of states” as a resilient federal model, pointed out that states now play a central role in driving the economy thanks to their largest public spending and borrowing. But we are seeing a growing gap between the Union and the states, restrictions on states’ freedom to spend, borrow and raise resources require urgent attention, he said. He described the 16th FC as a ‘textbook commission’ that largely followed a constitutional mandate.
Seconding Mr. Rao’s concerns, former Planning Commission Vice-Chairman Montek Singh Ahluwalia warned of a shift from cooperative and healthy competitive federalism to “combative federalism”.
He emphasized the need to counter the unchecked growth of cesses, rethink the distribution of entities across the Union, state and concurrent lists and think more boldly on issues like delimitation, size of states and genuine devolution of powers to local governments. In a market-oriented, globally integrated India, the Commission needs to be re-examined as to whether it is fit for purpose, Mr. Ahluwalia said.
The day-long conference, jointly organized by the Telangana State Finance Department and the Center for Economic and Social Studies (CESS), saw eminent panelists weigh in on the framework and focus on vertical and horizontal transfer of resources between states and the Centre, subsidies to state governments and fiscal consolidation.
Telangana Chief Secretary K. Ramakrishna Rao, who highlighted the state’s high share of own revenue of about 80%, while advocating a reduction in dependence on Union transfers, called for stronger local resource mobilization. He noted that the removal of revenue deficit grants and sector and state grants that were in the 15th FC to improve fiscal responsibility was a “real break from the past”.
On grants-in-aid to state governments, 15th FC member Ajay Narayan Jha scrutinized the draft constitution and argued that “aid needs” should be assessed in relation to each state’s capacity. He said structurally deficit states such as those in the North East and Jammu and Kashmir remain under-addressed and such states must be specifically recognized and addressed in the Finance Commission’s future proposal.
Retired bureaucrat and founder of Foundation for Democratic Reforms Jayaprakash Narayan said state governments are playing a bigger role in providing public services and carrying out development activities. He pointed out that there are significant differences in fiscal health between states. The debt-to-GSDP ratio, or the government’s total outstanding debt relative to the size of its economy, is highest in Andhra Pradesh at 61%, followed by Telangana (49%) and Punjab and at least 12% by Odisha.
Several other speakers pointed to the Commission’s unchanged terms of reference, the lack of transparency of taxes and surcharges, the high reliance on GDP metrics, the insufficient use of the state’s tax powers and the need for better indicators of spending efficiency and fiscal discipline.
Panelists included KJ Joseph (Gulati Institute of Finance and Taxation), Atri Mukherjee (Department of Economic and Policy Research, RBI), Mythili Bhusnurmath (The Economic Times), Karnam Gayatri (Fiscal Policy Institute), Manish Gupta (National Institute of Public Finance and Policy), NR Bhanumurthy (Jedraseb. School of Finance), NR Bhanumurthy (Jedraseb. School of Finance) Krishna Bhaskar (TGTRANSCO), Sanjaya Baru (Takshashila Institution), former Special Principal Secretary PV Ramesh, GR Reddy (Founder Member, CESS) and Director (CESS) E. Revathi.
Published – 25 Feb 2026 21:09 IST
